Chapters

Customer Relationship Management in Tesco
0811866956938
CHAPTER 1
Introduction
0811866956938
CHAPTER 1
1.1. Introduction
The Purpose of this research is to gain fresh insights into the concept of loyalty and customer relationship management and the part it plays in strategic decision making. Its the strategic implications of loyalty schemes that the project seeks to look into.
Customer Loyalty has been one of the most misunderstood concepts of recent years (Payne, 2002). Unfortunately there is no universally agreed definition of loyalty (Jacoby and Chestnut 1978; Dick and Basu 1994; Oliver 1999). Oliver (1999) suggested that loyalty and satisfaction are linked inextricably, but also that this relation is asymmetric, arguing that although loyal customers are usually satisfied, satisfaction is an unr eliable precursor to loyalty. This research seeks to define the real meaning of loyalty in retail terms and how it differs to satisfaction.
Some loyalty Schemes are termed as a disguised from of Sales promotion. They are just another way of bribing the customers (Woolf, 1996), Its a zero sum game as profit margins are squeezed to run the scheme (Oliver, 1999). Handling data is like drinking water from a fire-hose (Humpy et al, 2004). Still, loyalty schemes are practiced by big retailers. This study seeks to identify the variables which help make a loyalty scheme successful. In this chapter we will firstly look at The Importance Of Customer Relationship Management and Then Retail Industry, Tesco, customers buying behaviors, research aim and objectives, Scope, Rationale, Methodology, Conclusions and Recommendations, Conclusion.
1.2. Company Overview

Established in 1919 by Jack Cohen and TE Stockwell in London, UK. The stores were small and ill equipped initially.
Competed only on price and had mediocre quality products. 2
0811866956938
Went for a revamp in mid 70s and focus shifted to customer service and quality and In 1979, its annual turnover crossed 1 billion. It expanded into other European markets
wider product portfolio.
But could not sustain itself due to competition in those markets. Sold its French operations to Promodes. In 1990s started with loyalty cards, internet shopping and mobile phone services that
helped them regain their position in the market. By 2009, Tesco recorded sales of GBP 30.4 billion.
(Source: Annual Review and Conclusion Financial Statement 2009 )
1.3. Research Aim and Objectives
13.1 Aim
To determine the loyalty in retail industry in the UK and analyze the correlation between consumer satisfaction and consumer loyalty The Purpose of this research is to gain fresh insights into the concept of loyalty and customer relationship management and the part it plays in strategic decision making. Its the strategic implications of loyalty schemes that the project seeks to look into. Objective 5 is in a way the primary objective of the research, all other objectives are necessary to be realized before a thorough understanding of the strategic ramifications of loyalty programmes is acquired. Thus, objectives 1-4 are important stations (intermediate goals) which help reach the final destination or purpose (objective 5).
1.3.2 Objectives
Objective 1-Identify the relationship between customer satisfaction and customer loyalty.
0811866956938
Customer Loyalty has been one of the most misunderstood concepts of recent years (Payne, 2002). Unfortunately there is no universally agreed definition of loyalty (Jacoby and Chestnut 1978; Dick and Basu 1994; Oliver 1999). Oliver (1999) suggested that loyalty and satisfaction are linked inextricably, but also that this relation is asymmetric, arguing that although loyal customers are usually satisfied, satisfaction is an unreliable precursor to loyalty. This research seeks to define the real meaning o f loyalty in retail terms and how it differs to satisfaction. Objective2 - Examine the conditions under which customer loyalty enhances profitability. Some loyalty Schemes are termed as a disguised from of Sales promotion. They are just another way of bribing the customers (Woolf, 1996), Its a zero sum game as profit margins are squeezed to run the scheme (Oliver, 1999). Handling data is like drinking water from a fire-hose (Humpy et al, 2004). Still, loyalty schemes are practiced by big retailers. This study seeks to identify the variables which help make a loyalty scheme successful and profitable. Objective 3 - Building favourable customer relationships. Our Customers told us that they prefer pound in their pockets. (Zaria Pinchbeck, Asda, 2003, cited in Web 1). Trying to analyze all the data is madness (Waitrose, cited in Web 2), Dropping the loyalty card is inconceivable (Russell Craig, Tesco, 2004, cited in Web 3). The market research company Mintel, says that there is mixed evidence that loyalty cards really do promote loyalty. Gary Davies (2004), professor of retailing at Manchester Business School (cited in Web 4), believes that loyalty cards have run out of steam stating that most of us have cards for at least two stores, so that defeats the point [of loyalty]. The UK's top two supermarkets, Tesco and Sainsbury's, both say that loyalty schemes are an integral part of their retailing strategy and insist they remain committed to them. The study seeks to assess the contribution of loyalty programs in creating long term relation with the cunsomer. Objective 4 - To assess the contribution of loyalty programs in creating relationship with the consumer. The study seeks to point out the parameters TESCO considers to quantify the effect of its loyalty program and assess if those parameters are justified. Safeways loyalty scheme (ABC card) started off well but was finally withdrawn four and a half years after its launch. ASDA 4
0811866956938
shied away from rolling out the loyalty card nationwide after having trials at different stores. TESCO Clubcard was three times more famous than Sainsburys Saver card and achieved two and a half time greater awareness than any other card. (Woolf,2002) TESCO CEO Terry Leahy puts it Its not the skill but the will that counts. This research seeks to examine TESCOs skill and the will which makes its loyalty program stand out and the extent to which it contributes to the retailers success. Objective 5 - Assess whether loyalty marketing should form a part of a retail firms overall business strategy Is Loyalty Marketing dead or is it a vital force to reckon with? The research will explore the myth and realities of loyalty marketing and the part it plays in shaping Tescos overall business strategy.
1.4. The Importance of Customer Relationship Management

One of the most important writers and commentators on CRM is Merlin Stone. He, Woodcock, and Gamble (1999) defined CRM: CRM is an enterprise-wide commitment to identify your named individual customers and create a relationship between your company and these customers so long as this relationship is mutually beneficial. (MERLIN, S., WOODCOCK, and GAMBLE, 1999).
Loyal Customer can mean a consistent source of revenue over a period of many years. However, this loyalty cannot be taken for granted. It will continue only as long as the customer feels they are receiving better value than they would obtain from another supplier. There are many approaches companies can usefully adopt to measure loyalty and many companies keen to help with various tools and techniques. A large number of retailers have become so focused on customer basket analysis, profitability and driving down operating costs that they have forgotten to listen to the real voice of the customer. Indeed in a Bain Company survey in 2005, 80% of companies believed they were delivering a superior customer experience; only 8% of their customers agreed.
0811866956938
1.5. Retail Industry

Though global retail industry began humbly, it went onto become a business worth billions. Trade was more of a barter system once, where the surplus produce was swapped for another. Cretans were the earlier traders, who carried on the trade in the Mediterranean region. Then came the Phoenicians, who not only traded but also distributed the goods across various regions. Romans followed and they developed a sophisticated form of retailing. Many small shops came up and it is said that the Romans built the first department store. It is these people who developed the retailing methods we know today. But with the fall of Roman Empire, retailing disintegrated.The only retailers left were the peddlers, who traveled across various places selling their wares. Inefficiency of the earlier distribution system led to a new concept of selling department stores, which rose in the mid-19th century. Then a century later, various retail formats arrived chain stores, convenience stores, supermarkets and mail order business. With this, the retail industry began to expand. Nothing has remained the same since 1990s; the only exception is that Wal-Mart was the leader then and now also.
1.6. Customers Buying Behaviour

The significance placed on advertising was not only limited to the corporate world. In many ways, academics and scholars also devoted much of their writings on advertising effects. For instance, for nearly four decades now, there has been a raging debate among academics and scholars concerning the relative power of advertising as a communication tool. Two opposing school of thought have emerged on this subject as a result.
Advocates of the strong theory, which is mainly associated with academics and scholars in the United States, contend that, advertising is a strong marketing force that actually persuades consumers to buy the product/service (Jones, 1990). This view rather contrasts sharply with those held by advocates of the weak theory, mainly associated with European academics and practitioners who see advertising as rather a weak force, capable only of reminding or reinforcing (Ehrenberg et al, 1999).
0811866956938
A challenge faced by all marketers is how to influence the purchase behaviour of consumer in favour of the product or service they offer. While their ultimate goal is to influence consumers purchase behaviour, most marketers understand that the actual purchase is only part of an overall process. Marketers success in influencing purchase behaviour depends in large part on how well they understand consumer behaviour. They need to understand how consumers make purchase decision? Where do they prefer to buy products? How are they influenced by marketing stimuli at the point of purchase? and the relevant internal psychological process: Motivation, perception, attitude formation, integration and learning.
1.7. Structure of Research

Chapter 1, introduction, provides the introduction which gives information about retail industry, company overview, and research topic and objectives and chapters overview. Chapter 2, literature of review, provides the literature of customer service which gives definition of customer service and the advantages of having excellent customer service in business. Moreover we will look at customer relationship management, customer needs and customer expectations whilst consumers are on shopping. We will also investigate the importance of customer service and the impact on consumer purchase and customer satisfaction. Plus it will be point out how to make customers satisfaction at the service. Furthermore we will look at customer retention, customer loyalty and factors to increase customer satisfaction and loyalty and reward strategy. However we will discuss the customer complaint, customer compliments and improving customer service the reason looking at benefit of excellent customer service. We will also look at customer service in retail industry and customer service at Tesco Chapter 3, methodology, provides research methodology, research objectives and research philosophy. Under research philosophy we will look at qualitative, quantitative and mixed research methods. Furthermore we will look at data collection methods which contain primary and secondary data and questionnaire design. 7
0811866956938
Chapter 4, research result, this chapter provides the needs of questionnaire and the respondents answers to the questions. However it provides the research limitations that gathering the information, time limitation and other factors. Furthermore it provides the questionnaire result and findings. Chapter 5, conclusion, provides the conclusion according to hypothesis, questionnaire and findings from questionnaire. Furthermore it investigates the research objectives thorough to explanations from literature of review. Chapter 6, recommendation, which is last chapter, provides the recommendation to the company to have better customer service. Furthermore according to writers to have best customer service in literature of review and participants who suggested in via questionnaire, it is pointed out the errors on customer service. Hence company can correct its errors and can have excellent customer service.
0811866956938
CHAPTER 2
Literature Review
0811866956938
CHAPTER 2
2.1. Introduction
This chapter dealt with the relevant theories and concepts that pertain to loyalty in general and illustrated the brand of loyalty which is relevant to Tesco. It will give us the outline of the form and structure of Tescos Clubcard and how its embedded within the organization. Im sure its being done as a way to fight back against the competition. There are groups of shoppers who chase the cheapest deal, so this may encourage more customer loyalty. (Keith Bowman, City A.M.)
The aim of this chapter is to look at both attitudinal and behavioural dimensions. It goes on to give a detailed account of relevant loyalty frameworks and models put forward by purists and the reasons for the popularity and sudden proliferation of loyalty schemes. Furthermore, looking at sources of literature relevant to this study.
The related literature pretends to give an overview of the topic in the spheres of customer service, customer loyalty enhances profitability in retail sector.
According the Heskett customer satisfaction is related to customer loyalty. And customer loyalty brings the profitability for the organisation. All these things are influenced by customer service. (James L. Heskett, 2002:355)
Payne (2002), points out customer loyalty has been one of the most frequently discussed and most misunderstood concepts of recent years. Loyalty is .This disagreement has led to a debate that originally started almost 30 years ago between Jacoby and Kyner and is still going on in present times (Rundle-Thiele, 2001) . In order to realize the purpose of the research, its important to assess loyalty schemes as a part of a strategy rather than a stand-alone entity. It must be considered that CLPs do not exist in a vacuum, but should be a coherent element of a companys overall strategy and capabilities (OMalley , 2000).Given the potential benefits of customer-loyalty-programmes, firms like Tesco have adopted them as a core business strategy (Morgan et al,2000). Tescos design of a loyalty program takes into account the nature of the business, its market position 10
0811866956938
and strategic goals, and the competitive landscape. (Fournier et al, 2001). It is essentially a long term CRM strategy that not only evaluates the current performance of Tescos relationship with its customers, but also drives its strategic direction. (Roberts, 2004). The success strategy is always to closely align an organization with its customers but bringing this vision to reality is far from easy ( Sawhney, 2001). In this chapter we will firstly look at loyalty and then customer-loyalty-programmes and we will look at loyalty as strategy.
2.2.
Loyalty
According to the Oxford Dictionary of Current English (2003, pg 327), loyalty is defined as being faithful or steadfast in allegiance but as Payne (2002), points out customer loyalty has been one of the most frequently discussed and most misunderstood concepts of recent years. Loyalty is .This disagreement has led to a debate that
originally started almost 30 years ago between Jacoby and Kyner and is still going on in present times (Rundle-Thiele, 2001) .
According the Heskett customer satisfaction is related to customer loyalty. And customer loyalty brings the profitability for the organisation. All these things are influenced by customer service. (James L. Heskett, 2002:355) In order to realize the purpose of the research, its important to assess loyalty schemes as a part of a strategy rather than a stand-alone entity. It must be considered that CLPs do not exist in a vacuum, but should be a coherent element of a companys overall strategy and capabilities (OMalley , 2000).Given the potential benefits of customer-loyalty-programmes, firms like Tesco have adopted them as a core business strategy (Morgan et al,2000). Tescos design of a loyalty program takes into account the nature of the business, its market position and strategic goals, and the competitive landscape. (Fournier et al, 2001). It is essentially a long term CRM strategy that not only evaluates the current performance of Tescos relationship with its customers, but also drives its strategic direction (Roberts, 2004). The success strategy is always to closely align an organization with its customers but bringing this vision to reality is far from easy ( Sawhney, 2001).
11
0811866956938
2.2.1. Conceptualizations Of Loyalty
Figure 2.1. Conceptualizations Of Loyalty
[Source: Adapted from Uncles et al., 2002]
There are three popular loyalty conceptualizations put forward by Uncles et al.(2002) this can be seen in Figure 2.1..1. :
(Model 1); Customer loyalty as primarily an attitude that sometimes leads to a relationship with the brand
(Model 2); Customer loyalty mainly expressed in terms of revealed behavior (i.e., the pattern of past purchases) (Model 3); Buying moderated by the individuals characteristics, circumstances, and/or the purchase situation Analysis of models put forward by Uncles will bring us closer to one of the objectives of the research as it may reveal the real meaning of loyalty in attitudinal and behavioura l terms and the conditions which help a loyalty scheme prosper. 12
0811866956938
This determinist approach considers loyalty more as an attitude and argues that there are a limited number of explanatory factors responsible for it, which can be isolated and manipulated (Odin,2001) , including:
Customer satisfaction: Oliver (1999) suggested that loyalty and satisfaction are linked inextricably, but also that this relation is asymmetric, arguing that although loyal customers are usually satisfied, satisfaction is an unreliable precursor to loyalty, which is further evidenced by findings from the automobile industry, in which 85 % to 95 % of customers report that they are satisfied, but only 30% to 40% return to the previous make or model. This gives us a pointer that satisfaction may not be as intricately linked to loyalty as assumed and brings us closer to Objective 1.
Commitment and Trust: According to Morgan and Hunt (1994), commitment and trust not just one or the other are the key to success in relationship marketing, since trust implies that the consumer has confidence in the brand/firm and is willing to rely on it though there is an evidence of risk involved, while commitment reflects a psychological attachment to the brand/firm and an enduring desire to maintain the relationship.
2.2.2. Loyalty Frameworks

A popular framework that tries to take into account both dimensions of the loyaltyConstruct has been proposed by Backman and Crompton (1994) (cited in OMalley, 1998), which results in a number of different categories of loyalty, each of which have clear managerial implications as demonstrated in Figure 2.2.
13
0811866956938
Figure 2.2. Categories Of Loyalty
High
Patronage Behaviour
Low Latent Loyalty
High Loyalty
High
Relative attitude
Organisations must not become complacent Managerial efforts are best focused on and managerial efforts should be continually removing the obstacles to patronage, for focused on reinforcing attitude and example by extending the branch network. behaviour, particularly as the consumer is Occurs when the customer feel san element likely to be targeted by competitors. This may involve maintaining a price advantage, of loyalty yet will not buy from that retailer on every occasion and/or providing additional services, whic h offer value to the consumer Spurious Loyalty No Loyalty
In order to defend the customer base Managers can attempt to generate spurious against competitive attacks managers can loyalty through such means as in-store attempt to maintain spurious loyalty and/or promotions, loyalty clubs and special offers develop sustainable loyalty .Little difference .Is a state whereby customers will move is perceived betw een retailers, there is often from retailer to retailer as there is little inertia w hic h keeps a customer loyal based benefit and difference perceived betw een on habit. any of the outlets in the marketplace.
Adapted from O Malley 1998, pg 47-55
In an attempt to explain the forces affecting loyalty in more detail, Diller(2000) has proposed a model of loyalty motivators and de-motivators that is based on background theory from consumer motivation research and is illustrated in Figure 2.2.
2.5.
Low
Reasons for the rapid increase in popularity of customer loyalty
Loyalty schemes can lead to more purchases more often, give the ability to mass customize marketing communication, minimize waste and help promote trust. It attempts to win a slightly larger share of the customers spend than would otherwise be the case if the additional value of the scheme were not offered (McAlexander,2002). Loyalty programmes seeks to identify and talk to individual customers on a massive scale and torrential flow of live transactional data offers the possibility to transform how retailers 14
0811866956938
manage their business. Research will analyze in greater detail the ways in which loyalty programmes can transform the business and help make strategic business decisions, which is the purpose of the research (to evaluate loyalty as a strategy). One of the reasons for the great popularity of customer loyalty is the recognition that losing a customer means in fact more than a single sale: It means losing the entire stream of purchases that this particular customer would make over a lifetime of patronage also known as the customer lifetime value(Kotler and Armstrong,2001). Another reason for the rapid increase in popularity of customer loyalty can be found in the impressive array of suggested evidence in support of loyalty, such as the figures provided by the associates of Bain & Company, claiming that the net present value increase in profit that results from a 5% increase in customer retention lies somewhere between 25 and 95% in over 14 industries (Oliver, 1999).
Loyal customers are supposed to buy more, pay higher prices and bring in new customers through word-of-mouth support (Morgan et al.,2000).Another profitabilityargument in favour of loyalty includes that in many cases the management of loyal customers is supposed to be cheaper since they are usually better informed and therefore ordering and delivering procedures can become routine (Scott, 2000, cited in Web 7).However, some of these profitability-arguments have been challenged recently by Reinartz and Kumar (2002). They also found that a considerable amount of loyal customers were only marginally profitable, while a large percentage of short -term customers were very profitable.
This has arguably to do with the fact that many non-loyal customers can be highly profitable at the beginning, causing companies to chase after them in the hope of future profits, but once these customers cease their buying activity, they may become unprofitable because the company continues to invest in marketing to them (Reinartz and Kumar,2002).A recent Best of Biz (2003) report also questioned customer loyalty as the driver of profitability, arguing that profitability might ultimately be more related to business fundamentals such as superior products, services or processes. Academicians have also argued that loyalty programmes are ultimately self-defeating when competition confronts the first mover. Woolf (1996) puts it great success comes from a marketing strategy base firmly on understanding customer economics and only 15
0811866956938
secondarily on customer loyalty. Other pro-loyalty arguments include that loyal customers may bring more certainty into the business, e.g. through increased customer immunity to competitive offers, through higher tolerance of mistakes made by the supplier, through increased customer feedback (loyal customers are supposed to be more prepared to complain and to participate in surveys).On the other hand, however, loyal customers may also seduce suppliers into complacency and encourage inactivity and carelessness or the supplier may become too reliant on them, which may mean that they fail to adapt to changes in market structure or to respond to the changing importance of certain market segments (Diller,2000).However, despite their criticism, even critics themselves have suggested that customer loyalty is a worthy contributor to the shareholder value of a company(Diller,2000;pg33), and that firms are encouraged to study their position and options in the pursuit of this goal(Oliver,1999; pg37). The research will extensively analyze the reasons for popularity of Tescos loyalty programmes and compare it with other loyalty schemes which are one of the objectives of the study (to compare and contrast Tescos loyalty schemes with its competitors).
2.6.
Customer-Loyalty-Programmes
The notion of customer-loyalty-programmes is not really a revolutionary idea and it is probably fair to say that the cooperatives pioneered the modern day programmes already in the mid 1800s (Sparks, 1999). What distinguishes todays customer-loyalty programmes is their ease of use for consumers as well as the degree of technology involved. However, the rationale behind modern CLPs is still the same, to build lasting relationships with customers, and to do so by rewarding loyal and heavy or frequent buyers, in the hope of achieving benefits of loyal customers. The ultimate goal of every CLP, according to Stauss et al. (2001), is to increase general operational profitability by customer retention. However, Butscher (2001) argues that profitability should be considered as a medium- or even long-term goal which can only be achieved if other intermediate goals are reached first, such as building a strong customer database. Most modern CLPs are using some form of membership card which is presented at the point of sale in order to identify the customer and to record the purchase details (e.g. time of purchase, value and type of items etc) and/or the value of the rewards earned. There are various different types of cards issued by and on behalf of retailers, including:
16
0811866956938
Payment cards: provide a mechanism for customers to pay retailers and are sometimes known as store cards Reward cards: provide a mechanism for retailers to reward their customers for repeat purchasing and are sometimes called bonus cards or club cards which is what Tescos club card is all about. Combined cards: act simultaneously as payment and reward card
According to Cuthbertson and Williams (1999), retailers have four different CLP -card strategies available:
2.7. The 5 P Loyalty Strategy

Pure Strategy: Spending and accruing benefits with only the card-issuing retailer. Means, strengthening the existing bond between the customer and the retailer, so that the retailer can find out what the customers wants, and give the customer more of it. Pure loyalty schemes aim to establish a two way dialogue so that the retailer can act to improve the basic offer. (Rayner, 1998). Tesco used to follow a Pure Strategy and even now the Clubcard is more or less based on a pure strategy with the primary objective being, strengthening the two way communication and understanding the customer better. Although Tesco has partners like Allders, H Samuel, Powergen etc. under Tesco Freetime but it is Tesco which issues the Clubcard points and the partners buy those at a rate negotiated with Tesco. But they are the Tesco Clubcard points redeemable through Tesco or Tesco Free time only. This can be seen Figure 2.3.
Push Strategy: Spending at several retailers, accruing benefits with the cardissuing retailer. Means, creating a scheme to encourage customers to use a way of shopping that they would not have done before ,pushing customers through new channels, or trying to create new types of behaviour. It is a technique u sed by low-cost airlines to encourage customers to book online, or it can be used by a retailer expanding into non-core businesses to draw customers with it.
17
0811866956938
A pure loyalty card strategy primarily affects current customers. If successful, new primary customers would then need to be attracted via a Push loyalty strategy.( Rayner ,1998) Pull Strategy: Spending at the card-issuing retailer, accruing benefits outside the retailers everyday range. Means, attracting customers by augmenting a retail offer, so customers will find that buying one product means that they get an offer on another, linked product. At a simple level buy one get one free. Effectively it is an inducement to create more sales by encouraging customers to buy something new.( Sharp,1997) Butscher (2001) has suggested that the information obtained from CLP -members are particularly useful as they have already identified themselves as having a special interest by signing up for the programme and sometimes depending on the type of programme (limited programme versus open programme), even pay a membership-fee an effort that non-interested customers would probably not invest. The advantage of a limited programme, where members have to pay a joining-fee and/or annual-membership fee is that it has a positive influence on filtering out unwelcome members.
Figure 2.3. The 5 P Loyalty Strategy
Adapted from Butsher,2001, pg 123-131 18
0811866956938
Figure 2.4. The characteristics of limited and open customer-loyalty-programmes Limited or Opt-it CLP Membership fee helps to cover costs. Membership channel prerequisite helps on Open CLP A wider number of customers can be reached. Database more complete Potential customers and
membership/focus
target groups. Limited access makes membership more valuable. Clearly defined membership
competitors customers can be reached more easily. Completeness of database could, after further analysis, lead to segmentation and segment-
structure makes communication more effective Membership prerequisite keeps
specific communication. Larger number of members helps to reach critical mass, which makes become sooner. loyalty more programme cost-effective
number of members, and thus cost , down. Database includes only members with an above-average interest in the product Membership expectations, programme constantly value. payments so the raise loyalty is
management forced to
improve
Will be the better approach for companies: Trying to reach/reward their top customers. Preferring approach With smaller budgets In clearly segmented markets 19 a more focused
Will be the better approach for companies: With very little knowledge about current and potential customers Following approach With long-term larger budgets In unsegmented markets a more general
0811866956938
In business-to-business markets In markets with homogeneous
In business-to-consumer markets With commodity products
customers
Adapted from: Butscher, 2001, p 51
The Tesco Clubcard falls into the category of open CLPs, (Figure 2.1..5.) since everybody living in the UK aged 18 years or above can register for it for free via an application form which provides essential information for targeted promotions (Tesco Clubcard Brochure). Since this research takes a Tesco Case Study, it only takes into consideration Open-CLPs. It should be kept in mind that a loyalty card is not a replacement for any of the basic loyalty drivers but is a supplement to them. Just as a hammer doesnt build a house, a loyalty card doesnt build customer loyalty. Both the hammer and the card are tools that, when properly and appropriately used, help bring the architects blueprint to life. (Woolf, 2004).
2.8.
Building a CLP
Setting up a customer-loyalty-programme requires careful planning and should include detailed plans and methods for customer identification and registration, segmentation, reward design, and programme maintenance operations. Moreover, setting up a CLP is very resource intensive and therefore the company developing the programme should take it very seriously, i.e. being aware of the time, effort, financial investment and above all, being aware of entering a long-term commitment (Butsher,2001). In order to be a source of sustainable competitive advantage, the company developing the CLP must always take into account what its loyal customers value, since loyalty is inextricably linked to the creation of value, and then design a programme that directly supports their value proposition (Morgan et al, 2000). The greater the perceived value of a companys goods or services, the greater the loyalty effect. (Bryan, 2002). A value proposition is the full positioning of a brand , the full mix of benefits upon which it is positioned and the answer to the customers question Why should I buy your brand?(Kotler & 20
0811866956938
Armstrong,2001).Moreover, in order to be viable, a CLP must build and sustain noticeable differences in its offerings that are difficult to copy, since a lack of differentiation removes any potential of competitive advantage which is anything but easy in retailing, where first movers are quickly imitated (Morgan,2001).Thus, the right combination between soft (e.g. magazine, travel aids, special products, services, events) and hard-benefits (e.g. discounts, rebates, coupons) is essential and Tesco is a champion at this, because it knows fully well that although savings are at the top of the customers wish list, hard benefits are usually copied by the competition and therefore it considers soft benefits as the key to its loyalty programme as they are less likely to be copied due to their mostly intangible nature. Five elements which determine Tescos loyalty programmes value are (1) cash value (how much the reward represents as a proportion of spend); (2) choice of redemption options (the range of rewards offered); (3) the aspiration value of the rewards (how much the customer wants the rewards); (4) the perceived likelihood of receiving the rewards; and (5) the schemes ease of use .In addition to the elements are the psychological benefits of belonging to the programme and accumulating points.
In order to be able to deliver a unique value proposition (that is still in line with an organisations overall strategy), CLP-managers have to select an appropriate CLPformat which can be further categorized into behaviour-based models, attitude-based models, hybrid models and relationship-based models (Morgan et al.,2000).In practice, most CLPs follow the behaviour-based model, focusing on behavioural outcomes such as repeated patronage and targeting immediate benefits for the organisation by providing easily observable typically economic benefits to cause the customer to purchase, repurchase, or purchase more frequently the firms offering ( Figure 2.5.).However, this stands in contrast with the long-term character of the relationship-marketing concept and as a result of that, behaviour-based customer-loyalty-programmes have been criticised as dressed-up sales promotions that are highly questionable as relationship building initiatives which fail to emphasise on emotional elements and do not necessari ly lead to greater marketing efficiency and effectiveness (Tynan,2000).According to Dowling and Uncles (1997), behavioural based models might well stimulate sales for the duration of the promotion but do not have any long-term behavioural after-effects.
21
0811866956938
Figure 2.5. Behaviour-Based CLP
Programme tactics
Programme outcomes
Habitual buying Price advantage Persuasive communication
Switching costs Repeat patronage
Economic benefit
Promotional expenses
Adapted from: Morgan et al., 2000, p 73
An alternative approach followed by Tesco and proposed by Morgan et al. (2000) is known as the relationship-based model, which is based on relationship marketing theory, consumer behaviour theory and strategic marketing theory (Figure 2.6.) It has been suggested that in any marketing relationships, all partners engage to some extent in economic, resource and social exchanges and therefore these three areas of relationship content build the starting point for the relationship-based CLP:
Economic Content. The economic content of relationships deals with the economic benefits and costs of participating in the relationship and it has been suggested that customers are only willing to participate actively in a CLP, if the ir individual cost-benefit calculation leads to a positive result, which then provides the partners with an incentive to explore the relationship further, cooperation may become more attractive as enhanced economic returns will be expected thus, a strong economic relationship content can contribute to the growth of loyalty (Stauss et al.,2001).Loyalty marketing is, essentially, all about economic 22
0811866956938
differentiation. Its about deciding how to optimize long-term yield from the limited resources we have. Understanding our customers behaviour and economics (derived from loyalty program) allows to do just that. ( Woolf,2003 )
Resource Content. It has been suggested that parties engage in relationships to secure valuable resources that they would not be able to acquire more efficiently elsewhere, which, in a business/consumer exchange means that the business requires the purchasing power and effort of the consumer, while the consumer wants reliability, status, safety, and other facets of reputation and tangible v alue in the products and services they purchase and according to Morgan et al.(2000), the resource content of relationships can contribute to commitment among exchange partners through dependence, strategic interest, reciprocity and equity. Social content. The relationship-based model suggests that although economics and resources may indicate a prosperous relationship, no relationship can be successful in the long-term without a social environment that nurtures communication, honesty, fair play and an awareness of mutual interests and therefore a CLP should accommodate opportunities for interactions so that friendships may be developed. Customer loyalty and customer trust are the key variables of Tescos relationship -based model which it considers to be the crucial in building the intermediate goals of the model and providing competitive advantage, as they lead directly to a successful outcome.
23
0811866956938
Figure 2.6. Relationship-based CLP
Relationship content
Key variables
Outcomes
Customer retention Share of customer
Economic content Customer Loyalty Resource content Customer trust Social content
Customer referral
Co-operation
Promotional expenses
Product development expenses
Adapted from: Morgan et al., 2000, p 79
2.8.1. Tescos CLP-Mix

Tescos CLP falls into the category of so-called integrative instruments (Stauss et al.2001) due to its capability to combine various elements from existing tools as it relies on a differentiated set of product, price, communication and distribution issues to organize the customer benefits (although it has been claimed that relationship marketing offers an alternative to the traditional 4P classification, most scholars do still use t he classic paradigmatic framework when identifying adequate tactical marketing tools for building and maintaining relationships with customers (Hansen,2000).
The product-mix consists of goods and services of the specific CLP-operating company (Tesco) or its coalition partners (partners under Tesco Freetime). The price-mix, 24
0811866956938
contains member discounts, favourable conditions of payment as well as financial advantages via bonus programmes. Communication issue is of great importance for the interaction with CLP-members and with Tesco, communication with members is exclusive, meaning that it is only accessible to members, integrated in the sense of everything Tesco does (and sometimes does not do) sends a message that can strengthen or weaken relationships, as well as interactive in that Tesco not only talks to their CLP-members but also listen to what they have to say (Hansen, 2000). For this purpose Tesco has exclusive CLP-magazines (Clubcard Magazine), regular newsletters or mailings, or CLP meetings and events for members (Butsher, 2001).
2.9.
Loyalty as strategy
In order to realize the purpose of the research, its important to assess loyalty schemes as a part of a strategy rather than a stand-alone entity. It must be considered that CLPs do not exist in a vacuum, but should be a coherent element of a companys overall strategy and capabilities (OMalley, 2000). Given the potential benefits of customer-loyalty-programmes, firms like Tesco have adopted them as a core business strategy (Morgan et al, 2000). Tescos design of a loyalty program takes into account the nature of the business, its market position and strategic goals, and the competitive landscape. (Fournier et al, 2001). It is essentially a long term CRM strategy that not only evaluates the current performance of Tescos relationship with its customers, but also drives its strategic direction. (Roberts, 2004). The success strategy is always to closely align an organization with its customers but bringing this vision to reality is far from easy ( Sawhney, 2001). Tescos concept of Relationship Management begins and ends with the customer. Strategists have put in place a framework for understanding and meeting the needs of the customer or which (Fournier et al, 2003) calls as The Ideal Customer Experience.
A framework for the Ideal Customer Experience (Figure 2.7.) is designed by (Fournier et al., 2003) to deliver a Customer Experience that meets the needs of the individual customer. The strategy behind this (and behind Tescos strategy) is that a customer whose needs are understood and met will continue to purchase from the company with increased frequency and value. The result is win-win between the company and the customer.
25
0811866956938
Figure 2.7. The Ideal Customer Experience
Adapted from Fournier et al, ,2003 pg 133-151
2.10. Customer Loyalty Measures

They designed for the people within a company who dictate the strategic direction of the company. These measures evaluate the performance of a companys current client base and drive the future direction of a companys overall client strategy. Tescos loyalty measures are comprised of: Average Profit per Customer by Tenure Size of Customer Base by Tenure Lifetime Value of Customer Base by Tenure Potential Value of Customer Base by Tenure Although Loyalty measures are discussed in brief, the study doesnt deal in depth with the econometrics of the Clubcard.
26
0811866956938
2.11. Rank the Customer Base by Value

One of the key outputs of determining the Customer Loyalty Measures is to rank the customer base by value. This is very crucial as it should drive decisions on where a company should allocate resources. Initially, Tescos loyalty scheme was one size fit allin this case but later on it realized the importance of doing something extra for its more profitable Premium Loyal customers. Now Tesco understands the pivotal concept in determining a customers value, that some customers are much more important than others.
2.12. Customer Strategy Measures

Customer Strategy measures attempt to answer the following questions: 1. Which customers should company retain/grow/acquire/terminate? 2. How did the company perform in retaining/growing/acquiring/terminating the appropriate customers?
The Customer Experience is comprised of the following components: 1. Populating the Customer Profile To create the Ideal Customer Experience, Tesco populates the Customer Profile with the relevant information to properly understand and meet the customers needs. The Customer Profile will continue to be enriched as the relationship between the company and customer grows deeper 2. Delivering and Receiving Value at Each Customer Interaction Tesco views each interaction as a golden opportunity to deliver value through its products, services, and processes, as well as to receive valuable information from the customer in the form of feedback 3. Customizing the Customer Experience By understanding an individuals needs, it creates the Ideal Customer Experience by customizing the products, services, and processes to meet the needs of the individual customer The Customer Experience bit is where Tesco hugely outflanks its competitors. Detailed examination of all the factors will be done which will make the author reach closer to Objective 4. 27
0811866956938
2.13. Conclusion
In this chapter firstly we look at loyalty, conceptualizations of loyalty, loyalty
frameworks, reasons for the rapid increase in popularity of customer loyalty. Furthermore we also looked at customer-loyalty-programmes, building a CLP, Tescos CLP-Mix. At last we look at loyalty as strategy in Tesco.
This chapter dealt with the relevant theories and concepts that pertain to the concept of loyalty in general and illustrated the brand of loyalty which is relevant to Tesco. It gave us the outline of the form and structure of Tescos Clubcard and how its embedded within the organization. The study now moves ahead to adoption of appropriate methodologies to figure out what loyalty approach Tesco adopts, how its strategy aligns with the loyalty model and overall business objectives, if loyalty forms the core of its business strategy and how much does it contribute to enhancing customer experience and achieving business objectives. Through appropriate methods in place, it also seeks to evaluate the loyalty concept and its effectiveness in future. The aim of the next chapter is to achieve the research objective by applying the appropriate research approach, strategy and methodology. The chapter also seeks to ensure that the data collected is valid and reliable, is not contaminated and bias is reduced to a minimum. For this purpose the tried and tested Satmetrix Loyalty index is applied to measure Customer Loyalty Index to find out the effect of the Clubcard. Focus groups, Telephonic and face to face interviews are also conducted as a part of primary data collection, which help to triangulate findings.
Next chapter provides the methodology which method is used in this study. We will look at definition of research methodology, research objectives, research philosophy and research design. Furthermore we will also look at data collection method and questionnaire design.
28
0811866956938
CHAPTER 3
Methodology
29
0811866956938
CHAPTER 3
3.1. Introduction
In the previous chapter firstly we studies at loyalty, conceptualizations of loyalty, loyalty frameworks, reasons for the rapid increase in popularity of customer loyalty. Furthermore we also looked at customer-loyalty-programmes, building a CLP, Tescos CLP-Mix. At last we look at loyalty as strategy in Tesco.
In this chapter discussed and justified the methodology used in this research, starting by reiterating the objectives of the research project, moving to a theoretical explanation of the most relevant approaches, research design, data collection methods and data analysis to finally select the most suitable methodology for the current research and it finishes by concluding the main points through the chapter.
There are many different ways of distinguishing methods from one to another, such as dividing them according to their objectives (Robson 1993, cited Saunders et al, 1997). Research according to Sekaran (1992) is a multi-step process and can be described as a systematic and organized effort to investigate a specific problem that needs a solution. This chapter therefore focuses attention on justifying the selection of various methods used to help achieve the aims and objectives of the study.
At this chapter we will look at research methodology, research objectives and research philosophy. Under research philosophy we will look at qualitative, quantitative and mixed research methods. Furthermore we will look at data collection methods which contain primary and secondary data and questionnaire design.
After having definition of objectives we will look at the research methodology used in this research, and will clarify how the research problem has been solved. It starts with the research approaches and followed by a presentation of the research design, the data collection tools and furthermore a description of how the data is analyzed. Research methodology is taught as a supporting subject in several ways in many academic disciplines at various levels by people committed to a variety of research paradigms. Though 30
0811866956938
paradigms vary in their contents and substance, their broad approach to inquiry, in the authors opinion, is similar (Kumar R., 2005).
3.2. Research Objectives

To define the real meaning of loyalty in retail terms and how it differs to satisfaction. To assess the contribution of loyalty programs in creating relationship with the consumer. To examine TESCOs skill and the will which makes its loyalty program stand out and the extent to which it contributes to the retailers success. Assess whether loyalty marketing should form a part of a retail firms overall business strategy
3.3. Research Philosophy

The research philosophy depends on the characteristic of research problem and researcher own conviction about the natural of research (Walliman, 2001). In the existing literature two types of research philosophies have been found and these are namely Phenomenological and Positivism philosophies.On the other hand phenomenological concept is concerned with understanding human behaviour from the participants own frame of reference. The research is drive by the need to discover the realty behind realty of in particular situation. Social realty is viewed as dependent on the mind. (Saunders et al, 1997). In addition, the strength of this approach it has been argued is that it provides a richer, more in-depth understanding of the difficulty of phenomena. However, critics of phenomenology paradigm identify a major weakness in that the data collected is specific to the particular case studied therefore cautions should be take when generalizing it to a population, and hence reliability can be low (Hussey & Hussey, 1998). The phenomenology tends to use qualitative data and inductive approach where researches would gather data and develop assumption as a result of the data analysis (Saunders et al, 1997).
The research philosophy depends in essence on the research question; therefore each approach is intended to achieve different outcomes (Saunders et al, 2000).
31
0811866956938
3.4. Research Approach

An understanding of the research approach is essential because the research project will engage the use of theory. The theory might or might not be explicit in the design of the research, although it will usually be made explicit in the presentation of the finding and conclusion (Saunders et al, 1997). The extent to, which the writer is clear about the theory at beginning of research, raises an important question concerning the design of its research project. This is related with whether the approach is deductive or inductive. A deductive approach is a study in which a conceptual and theoretical structure is developed and then tested by empirical observation; thus particular instances are deduced from general inference, for this reason, the deductive method is referred to as moving from the general to particular. On the other hand, inductive approach is a study in which theory is developed from the observation of empirical reality; thus general inferences are induced from particular instances, which is the reverse of the deductive method (Collins and Hussey, 1997). In addition, it is useful to mention that deductive approach owes more to positivism and based on the collection of quantitative data, however inductive approach owes to phenomenology and based on collection of qualitative data.
3.5. Data Collection Method

To answer the research question and meet the objectives, the research project requires some combination of secondary and primary data. There are two main sources of data. Original data is known as primary data, which is data collected at source. Example includes survey data, which is obtained in an uncontrolled situation by asking question or making observations, and experimental data, which is obtained in a controlled situation by making experiments. Secondary is data, which already exists, such as books, documents and films (Collins and Hussey, 2003). Secondary data used consisted of; textbooks, newspapers, organisational publications and electronic resources. The justification of usage on secondary data has been broken down in sections.
32
0811866956938
3.6. Research Design Primary Research

Primary data are those from which the researcher can gain data by direct, detached observation or measurement of phenomena in the real world, undisturbed by any intermediary interpreter. It is a matter of philosophical argument as to what extent the detachment and undisturbed state are possible or even desirable. Indeed, in some research, a high degree of involvement is a requirement for the successful collection and analysis of data. In every case, though, the research is answerable for the reliability and authenticity of hi/ her source, and should be able to argue in defence of the quality of sources (Walliman, 2001). Primary research can be defined as The process of gathering information directly from people within your target market. A. Wilson (2003). P. Ghauri and K. Gronhaug (2002) also state that When secondary data are not unable to help answer our research questions, we must ourselves collect the data which are relevant o our particular study and research problem. The main advantage of primary data is that the researcher creates them for their purpose with their guidance and it is up to date. The disadvantages of primary research are that primary data takes time to conduct, the costs are usually high and the most important is finding participants.
There are many types of primary data which can be used to research different kinds of objectives. For this research a multi-method approach, triangulation, was conducted. Triangulation uses two or more different methods of data collection in order to fill in the weaknesses of another.
Qualitative research. Quantitative research.
3.6.1. Qualitative research

A Wilson (2003) states that; Qualitative research is conducted to give a more in dept understanding of a situation. The term qualitative is used to describe research methods and
techniques that use and generate qualitative, rather than quantitative, information. A. Wilson 33
0811866956938
(2003); notes, qualitative methods comprise an array of interpretive techniques which seek out to describe, decode, translate and otherwise come to terms with the meaning, not the frequency, of certain more or less natural occurring phenomena in social world. One of the basic assumptions underplaying qualitative research is that reality is socially and subjectively constructed rather than objectively determined. G. W. Ticehurst et al. (2000). G. W. Ticehurst et al. (2000) states that; In general, qualitative methods involve collecting a great deal of rich information about relatively few people or organisations rather than collecting more limited information about a large number of people or organisations."
3.6.2. Quantitative Research

A. Wilson (2003) states that; Quantitative research uses a structured approach with a sample of the population to produce quantifiable insights in to behaviour, motivations and attitudes. According to P. Ghauri and K. Gronhaug (2002). The writers move on to state that qualitative research can analyse focus and facts; reasons for social events, controlled measurement, hypothesis testing. Qualitative research can be questionnaires, number of semi or un-structured interviews to be collected and analysed and shown in figures rather than qualitative methods.
3.7. Time constraints

This study is time bound and needed to be completed within a short period of three months using very limited resources. Therefore the tasks to be achieved were broken and deadlines were set for theses tasks.
All data gathering was completed by end of second month. All empirical research and literature was reviewed by the end of first month. All analysis and conclusions were done by the second week of the third month.
34
0811866956938
3.8. Conclusion
In this chapter we looked at research methodology, research objectives, and research philosophy. Furthermore we looked at research design, data collection methods and questionnaire design.
We present the conclusion of our research methodology. The point of this research was to define the best methods on our research. In this study positivism approach was adopted to identify the outcomes. Moreover the research used mixed methods of research as questionnaire and observations. It is used quantitative methods while gathering the information and for the questionnaire it is used sample technique and triangulation method to point out the aim of this research. In addition in questionnaire it is used open-ended and close question methods with likert scale. In the next chapter the result will be presented with respondents answers to the questionnaire.
At the next chapter we will look at research result which contains questionnaire, limitations of research and questionnaire result. Furthermore we will look at the findings.
35
0811866956938
CHAPTER 4
Analysis
36
0811866956938
CHAPTER 4
4.1 Introduction
At the previous chapter we looked at the research methodology, research objectives and research philosophy. Moreover we looked at research design, data collection and questionnaire design. This chapter provides the needs of questionnaire and the respondents answers to the questions. However it provides the research limitations that gathering the information, time limitation and other factors. Furthermore it provides the questionnaire result and findings.
This chapter is devoted to the presentation and analysis of the information collected. The results of the mall intercept interviewing will be discussed and analyzed first. Analysis of focus groups, survey and face-to-face interviews will follow. These findings along with the findings from the secondary research will be triangulated and a thorough examination of the Tesco Clubcard will be done. The factors which have led to the success of the Clubcard will be highlighted and the strategic implications of the Clubcard will be analyzed. The evaluation of loyalty as a corporate strategy will be discussed.
In this chapter we will firstly look at result of research, and then discussion of the survey results, Tescos definition of loyalty and finally we will look at success factors.
4.2. Questionnaire
As it is mentioned in chapter 3, questionnaire is one of the primary data collection method which gathering the information from people through questions. The aim is approach the customer relationship management in Tesco. Even though gathering the information from questionnaire is costly, it is one of the good ways to find out the customers opinion freshly.
This study questioned customers to investigate how to improve customer loyalty among the customer who buys from Tesco. It was asked the customers comments about service they have experience and requested their ideas to have better service. 158 consumers responded the questionnaires 37
0811866956938
Questionnaire designed to gather information about consumers profile, their experience at the Tesco, and their suggestions on customer service thus questionnaires were distributed at the Tesco.
4.3. Limitations of Research

In this research, the comparison is made on evaluations based on one alternative (introducing the loyalty card) versus the status quo. Also, it should be noted that this study only examined the loyalty effects of the Tesco Clubcard in terms of its marketplace impact, it did not examine the loyalty effects in terms of the financial impact of the programme. Another potential shortcoming in the study is related to the measurement of purchasing behaviour, since its true meaning may only be partially captured due to the fact that its measure was selfdeclared by respondents (who are not necessarily objective in regards to their purchasing behaviour, since people do not necessarily like to admit being influenced) no database information could be used as input for measuring actual purchasing behaviour.
4.4. Questionnaire Result

As it is seen Table 4.1 data from the questionnaire indicates that more than three quarters (77.22 per cent) of the 158 respondents surveyed participate in the Tesco Clubcard programme. Although it was tried to get an equal gender distribution, men were much more likely to refuse to participate in the survey than women, and as a result of that, 92 out of 158 respondents were female of whom 83 (90.2 per cent) owned a Tesco Clubcard, and 66 were male of whom 29 (43.93 per cent) owned a Tesco Clubcard.
Table 4.1 Tesco Loyalty Survey Gender Joined the Survey Female Male Total 92 66 158 Clubcard Holders 83 29 112 (Source: Compiled by Author, 2010) Non-Clubcard Holders 9 37 46 90.2 % 43.93% 77.22% Rate (%)
38
0811866956938
The survey also revealed that 55.74 per cent (68) of the Clubcard-holders interviewed participate in more than one Supermarket CLP, of whom 86.76 per cent (59) were female and 13.24 per cent (9) were male.
The data further indicate that women were not only more likely to participate in the survey and more likely to own a Tesco Clubcard, but they also scored higher in terms of overall CLI than their male survey-counterparts, as demonstrated in Figure 4.1.
Figure 4.1. Customer Loyalty index sorted by female and male Clubcard members
8,79 8,8 8,6 8,4

CLI
8,2 8 0 7,8 0 0 Fema le
8,14 0 0
Male
0 0 0 0 0
gend er
(Source: Created by Author, 2010)
Female participants generally scored higher in every single dimension of the CLI, but the most significant difference between male and female Tesco Clubcard-members occurs in the Recommendation dimension as shown in Figure 4.2., where female Cardholders scored 9.15 Index-points as compared to only 7.45 Index-points of male Cardholders.
39
0811866956938
Figure 4.2. Customer loyalty dimensions: Female and male Clubcard members
CLI
Female Male
10 9 8 7 6 5 4 3 2 1 0
8,1 8,32
7,85 8,19
9,15 9,15 9,51 7,45
Overall satisfaction
choose first time
purchase again recommend
In terms of their occupation, the data show that 31.15 per cent (38) of the Tesco Clubcardmembers interviewed were Homemakers, 27.05 per cent (33) Professionals, 16.39 per cent (20) Retired, 16.39 per cent (20) Skilled Workers, and 9.02 per cent (11) Students, of whom 12.30 per cent (15) are living in a single household, 22.13 per cent (27) in a doublehousehold, 18.85 per cent (23) in a household of three, 30.33 per cent (37) in a household of four, and 16.39 per cent (20) in household of more than four people.
Regarding their loyalty towards Tesco, Clubcard-members scored reasonably higher than their non-member survey counterparts with an overall CLI of 8.68 for Clubcard-members as compared with 7.84 for non-members, accounting for a CLI difference of 0.84 Index-points in favour of Clubcard-members.
40
0811866956938
Figure 4.3. Overall customer loyalty for Tesco-Clubcard members and non-members
Type of customer
non Clubcard members 7,84
Club card members

7,4 7,6 7,8
8,68
8,2
8,4
8,6
8,8
Type
CLI (Source: Created by Author, 2010)
As shown in Figure 4.4., the biggest difference between Clubcard-holders and non-holders occurs from the Recommendation dimension of the CLI, with Clubcard- holders scoring 8.87 Index-points as compared to 7.19 Index-points of respondents without a Tesco Clubcard, accounting for a difference of 1.68 Index-points in favour of Clubcard-holders, while the Overall Satisfaction dimension of the CLI accounts for the smallest difference (8.29 Indexpoints for Clubcard-holders as compared to 8.15 for non-holders) with a surplus of 0.15 Index-points in favour of Clubcard-holders. In terms of Choose first time, respondents holding a Clubcard membership scored 8.13 Index points, compared with 7.33 Index points of respondents without a Clubcard membership, while in terms of Purchasing again they scored an Index of 9.45 as compared with 8.89 of non-members.
41
0811866956938
Figure 4.4. CLI Of Clubcard And Non-Clubcard Members On Loyalty Parameters

9,45
10
8,69 8,29
8,14
8,87
8,13 7,33 7,19
9 8
CLI
7 6 5 4 3 2 1 0
Clubcard members non-Clubcard members
Overall satisfaction
choose first time
Purchase again
Recommend
When manipulating the data according to occupation, results reveal that Homemakers holding a Tesco Clubcard-membership are most loyal towards Tesco, scoring a CLI of 8.77, followed by Retired Clubcard-members (8.75), Professionals (8.73), Students (8.68) and Skilled Workers (8.53) (also illustrated in Figure 4.5.)
42
0811866956938
Figure 4.5. CLI of Clubcard members by occupation
8.77 8.8
CLI
8.75
8.73
8.65 8.7 8.6 8.5 8.4

Student Homemaker Retired Professional Skilled worker
CLI
8.53
(Source: Created by Author, 2010) When manipulating the data according to size of household (as shown in Figure 4.6), results indicate that Tesco Clubcard-members living in a household of more than 4 people represent the most loyal category with an overall CLI of 8.80, followed by Clubcard-members living in a household of 4 with an overall CLI of 8.72, with single households being the least loyal with an overall CLI of 8.54.
43
Customer Relationship Management in Tesco Figure 4.6. CLI of Clubcard members by size of household
0811866956938
CLI
8,72 8,8
8,8 8,67 8,65
8,75 8,7 8,65 8,6 8,55 8,5 8,45 8,4 1 3 Size of 2 household 4 More 8,54
(Source: Created by Author, 2010) As illustrated in Figure 4.7, 13.93 per cent (17) of Tesco Clubcard-members responded less than 25 per cent compared with 25 per cent (9) of non-members when they were asked for their monthly grocery expenditure spent with Tesco as percentage of their overall monthly grocery budget, while 30.33 per cent (37) answered 25 50 per cent in contrast to 41.67 per cent (15) of non-members, 37.70 per cent (46) replied 51 75 per cent as compared with 22.22 per cent (8) of participants without a Tesco Clubcard membership, and 18.03 per cent (22) of Tesco Clubcard-members responded 76 100 per cent compared to 11.11 per cent (4) of without a Clubcard membership.
44
0811866956938
Figure 4.7. Percentage of monthly grocery budget spent with Tesco (CLubcard-members)
18,03% 37,70% 13,93%
30,33%
< 25%
25-50 %
51-75%
76-100%
Figure 4.8. Percentage of monthly budget spent with Tesco(non-Club card members)
11,11% 22,22%
25%
41,67%
< 25%
25-50%
51-75%
76-100%
45
0811866956938
When asked whether they have increased their spending with Tesco since they have had a Clubcard membership, 61.48 per cent (75) responded No and 38.52 per cent (47) responded Yes.
In terms of what is most important for them when selecting a supermarket, none of the respondents mentioned Clubcard, while 49.18 per cent (60) of all Tesco Clubcard-holders and 41.66 per cent (15) of all survey-participants without a Clubcard responded Location, followed by 39.34 per cent (48) of Clubcard-members and 36.11 per cent (11) of nonmembers who perceive value for money as most important when selecting a Supermarket, with brand assortment being most important for 9.02 per cent (11) of all Tesco Clubcardholders and 19.44 per cent (7) of respondents without a Tesco Clubcard, and one-stopshopping being ranked as most important for 2.46 per cent (3) of all Tesco Clubcardmembers and 2.78 per cent (1) of all non-members (also demonstrated in Figure 19)
Figure 4.9. Factors in selecting a supermarket
49.18 50 40
%
41.66 36.11 39.34 19.44 9.02 2.46 2.78
30 20 10 0
location Brand
factors
Value for money
One stop shopping
Clubcard-members
non-members
46
0811866956938
4.5. Discussion of the survey results

The prime interest of the survey was to examine the impact of the Tesco Clubcard on its members loyalty towards Tesco by applying the Satmetrix Customer-Loyalty-Index, and to analyse the success factors behind the Tesco Clubcard model.The results from the survey provide some evidence for a positive impact of the Tesco Clubcard on its members loyalty towards Tesco, since surveyed Clubcard-members generally scored a higher CLI than survey participants without a Tesco Clubcard-membership. The survey also provided other valuable indicators which are discussed below.
Figure 4.1. and 12 It is also worth noting that female participants were generally more likely to own a Tesco Clubcard (90.02 per cent of all female respondents owned a Tesco Clubcard, as compared to 43.93 per cent of all male respondents) and also scored higher in terms of CLI than their male survey-counterparts as demonstrated earlier in Figure 4.1. and 12, which supports claims that gender is a key discriminator in CLP-card ownership/participation (Wright & Sparks ,1999) (according to an AGB Omnimas loyalty scheme tracking survey, supermarkets and department stores are more likely to attract female participants, while petrol loyalty schemes tend to be male dominated), and also justifies investments into promotions specifically targeted at women (e.g. iVillage.co.uk). Figure 4.2. also indicates that female have higher CLI than men on all CLI parameters which effectively can mean that its easier to satisfy females , they are more loyal , they shop more often and are more likely to be locked-in. Also, the high difference in CLI with regards to recommendation suggests that Females are good advocators. As Focus group discussion had revealed that customers rate word-of-mouth publicity as the most important factor affecting their shopping habits, which means that females are in a way Tescos biggest asset. Even if they do not shop a lot, they are good at recommending and promoting things. Thus, as with Baby Club , Tescos future loyalty strategy should be to try to target females and bring them in under the Clubcard umbrella. The fact that more often than not ,females do sign up for loyalty schemes makes matters easy.
Figure 4.3. and 14 There appears to be clear evidence of a positive impact of the Tesco Clubcard on its members loyalty towards Tesco, since Clubcard-members scored higher in overall CLI and in each 47
0811866956938
single dimension, this is particularly true in the case of the Recommend dimension of the CLI meaning that Clubcard-members are much more likely to recommend Tesco to their friends and colleagues than customers without a Clubcard-membership, making them far more better word-of-mouth marketers for Tesco. The Overall Satisfaction dimension, accounts for the smallest difference of only 0.15 Index-points between Clubcard-members and non-members. This could be perceived as a weakness of the Clubcard since one of the main targets of customer loyalty programmes is to increase customer satisfaction, but on the other hand, the small difference between Clubcard-members and non-members in terms of Overall Satisfaction could also be seen as a strength of Tescos overall strategy (apart from investing in the Tesco Clubcard, Tesco invested heavily in a series of other initiatives designed to offer better value, improve its stores, and give a higher level of service to its customers (Peck ,1999), since Tesco shoppers without a Clubcard-membership are almost as satisfied as Clubcard-members despite the fact that they do not receive the additional benefits Clubcard-members get. But then it could indicate that Clubcard does not enhance the satisfaction factor among its members. The huge difference in other CLI parameters except Satisfaction does seem to suggest that Clubcard directly or indirectly does affect the shopper in one way or the other. Interesting bit to note is, if we consider satisfaction as the base and compare it with other loyalty parameters it reveals that though there isnt much difference in the Overall Satisfaction parameter between Clubcard members and non-members the difference is huge when it comes to Recommendation. Even in the case of Choose first time and Continue purchasing there is quite a bit of difference between Clubcard members and non-members which means that for Club card members the satisfaction does get transformed into transaction more easily and perhaps transaction into loyalty which can be justified by their habit of recommending.
Figure 4.5. and 16 The results also indicate that there appears to be a positive correlation between household size and CLI, since respondents living in a household with several members were inclined to score higher in terms of CLI than respondents living alone, which is in line with the research findings by McGoldrick et al.(1997), suggesting that loyal customers are more likely to live in larger households. However, Mason (1996) found little difference in customer loyalty according to household size, but suggested that the full-time employed tend to be more store loyal, which is inconsistent with the research findings of this study in that Homemakers and 48
0811866956938
the Retired scored the highest CLI and Students even scored higher than Skilled workers and only marginally lower than Professionals (however, it must be recognized that process of sample selection of the present study is different from that employed by Mason). We find that the CLI of Homemakers is the highest and considering that women form a major chunk of Homemakers category, it only justifies the previous finding that women are more loyal than men. More interesting things emerge when we try to analyze Figure 4.6.. We notice that CLI increases in direct proportion to the size of household which means the bigger the size of household the more loyal customers are . But loyalty can be because of several factors, Tescos Value for money products with its Tesco Value lines, product variety, location, One stop shopping etc. But it wont be unreasonable to think that with bigger household, customers have to spend more which can mean that they may be more price conscious than the ones with single households and may value discounts a lot more . It here then that the Clubcard may have an effect., customers may want to shop at Tesco to add points and get discounts. Thus Clubcard may make the larger households least susceptible to competitor attack by making them stick to Tesco for Clubcard points and subsequent discounts.
Figure 4.7. and 18 A positive impact of the Tesco Clubcard on its members loyalty towards Tesco appears to be further evidenced by , demonstrating that more than half (55.73 per cent) of all Tesco Clubcard-members surveyed responded that they spend more than 50 per cent of their monthly grocery budget with Tesco, compared with one-third (33.33 per cent) of all surveyed non-members. However, 61.48 per cent (75) of all surveyed Clubcard-members responded No when asked whether or not they have increased their spending with Tesco since they have had a Clubcard (however, this figures have to be treated carefully, since it has been suggested that consumers are not necessarily objective in regards to purchasing behaviour and that they are not likely to admit being influenced, when in fact their shopping patterns might show otherwise (Wright & Sparks ,1999). Thus (assuming that the respondents were objective), since Clubcard-members tend to spend a higher percentage of their monthly grocery budget with Tesco, but the majority of them did not increase their spending with Tesco since they have had a Tesco Clubcard, it could be argued that the majority of them have already been high spending/loyal customers beforehand and that the Clubcard did not fundamentally change their loyalty and shopping patterns but it also suggests that Club card also acts as a lock-in for the customer and makes them less 49
0811866956938
susceptible to competitor attack. On the other hand, there were considerable 38.52 per cent (47) of all Clubcard-members surveyed who responded Yes when asked whether or not they have increased their spending with Tesco since they own a Clubcard, which does suggest that Club card does have a role to play as far as consumer spend is concerned. Also, there is a significant amount of difference between the percentage of monthly budget bought from Tesco by the Clubcard members and non-members which again suggests that Clubcard may be the driving force behind it.
Figure 19 Another interesting result of the survey includes the fact that none of the participants, neither Clubcard-members nor non-members responded Clubcard as being most important for them when selecting a supermarket, while the vast majority of both categories responded Location as being most important, followed by Value for money being second most important, with Brand assortment being third most important and One-stop-shopping being fourth most important . These findings are inconsistent with the findings of a survey conducted by Verdict (Cuthbertson,2001), suggesting that one-stop-shopping is the most important factor for keeping UK-customers loyal (here again, this might be due to differences in sample selection and study methodology, since the sample of the present study was geographically concentrated to the City of Cardiff as well as just to one supermarket). But the fact that Clubcard wasnt the most important criteria doesnt suggest that it wasnt important at all, it may have been one of the important factors though not the most important. So, in no way can a judgment be made that customers do not value their Club card, may be they value it less than the other factors mentioned. Another interesting bit is the difference in Brand Assortment , non-Clubcard members seem to value Brand assortment a lot more than Clubcard members which means Tesco can rethink its strategy with regards to branded goods. Perhaps with the addition of some branded stuff it can increase satisfaction levels of nonClubcard members and make them a part of the Clubcard. Another research finding revealed that 55.74 per cent (68) of all Clubcard-holders surveyed participate in more than one Supermarket CLP, thereby supporting claims that consumers are more likely to have a repertoire of two or three brands within any product category from which they regularly buy, rather than just one i.e. polygamous or divided loyalty (OMalley,1998)
50
0811866956938
4.6. Tescos definition of loyalty (The Loyalty Cube)

Customers location in the loyalty cube suggests what sort of action is appropriate to earn their lifetime loyalty. The three axes on the loyalty Cube signify Contribution, Commitment and Championing.
Figure 4.10. The Loyalty Cube The Loyalty Cube
Championing Z
Commitment Y
Contribution Customer X
Adapted from Humpy et al., 2004 Contribution Signifies customers profitability. Some very loyal customers can make very low contribution to company profits while some occasional customers can make greater contributions. Contribution ,does not, in Tescos model, reflect loyalty Terry Leahys concept of the scheme is to encourage loyalty , not just profitability.
Commitment Measures future value. This contains two elements: the first is how likely the customer is to remain a customer, because a defecting customer has no financial value in future. It also measures headroom, this is the potential for the customers to be more valuable in future, provided everything possible is done to demonstrate value in that headroom. Customers who are already buying as much as possible have little headroom, for these customers new complementary areas become much more important, such as new departments in a store. Headroom is vital to a mature loyalty scheme like Clubcard and Tesco knows this and
51
0811866956938
constantly works to increase the headroom. Commitment has special significance in Tesco loyalty model as it always works to enhance value for the customers to increase headroom.
Championing Customers with little headroom can act in a third dimension in the cube: as an ambassador for the brand. This is where the idea that loyalty program members are members of the brand comes to life. If they see value in a program they will recommend it. The long term value of a low value customer in Tesco is in recruiting higher-value customers. The analysis of survey results do reveal that Clubcard members are quite good at advocating and recommending which means Tesco has been to an extent, successful at championing . Championing is of utmost importance in the Clubcard model as Tesco knows that word of mouth publicity is the most effective way of marketing.
4.6.1. Understanding the DNA of loyalty

Tescos loyalty program is a success because Tesco understands the basics of loyalty.
Business dynamics Tescos loyalty programme does not exist in isolation from day-today business dynamics of the company. What ever opportunities or constraints exist for the business as a whole , it is reflected in the loyalty programme.
Customer Behaviours It is axiomatic for Clubcard and any other loyalty programme that aims to succeed, that the focus of the programme should be to encourage profitable customer behaviour Reward the behaviour you seek as it is known at Tesco. Tesco establishes priorities for the change it wants to see in customer behaviour.
4.7.
Success Factors
First-mover-advantage
Since the Tesco Clubcard was the first nationwide supermarket CLP in the UK, it provided Tesco with considerable first-mover-advantage, one month after its launch, over five million 52
0811866956938
people had joined the Clubcard scheme and Tesco recorded a like-for-like increase in sales (household penetration had increased by almost 1 per cent, meaning that an additional 200,000 households had come to shop with Tesco and over one third of the gains were reported to be at Sainsburys expense) (Peck et al., 1999). Time between Tescos Clubcard launch and Sainsburys Reward Card, according to Market researcher Taylor Nelson AGB, customers spent 28% more at Tesco and cut spending at Sainsburys by 16%. Tim Mason, Marketing Director of Tesco plc, suggested that the reason why the scenery only changes for first-movers is because customers realize that organizations who do something first do it for their customers and the ones who follow do it to neutralize competitive advantage (cited in Web 8). This principle is further embedded in Tescos core purpose of Creating value for customers, to earn their lifetime loyalty, making Tesco what has been termed a Value innovator (Mauborgne, 1999) (Value innovators are companies that instead of striving to match or outperform the competition, cultivate value innovation by placing the buyer, not the competition, at the centre of strategic thinking).
Complete integration Tesco Clubcard does not exist in a vacuum, but is a coherent element of Tescos core purpose of Creating value for customers, to earn their lifetime loyalty(Web 9). It has completely integrated the Clubcard programme into its online and offline operations allowing Clubcardmembers to accumulate points whether they buy in-store or at Tesco.com (as well as with Tescos coalition partners) across almost every product category offered. By allowing Clubcard-members to check their points balance whenever they want via the Internet, the programme creates value to its members in that it contributes to improve its ease of use and its transparency. By integrating various other Club-schemes, such as the Tesco Healthy Living Club or the Tesco Baby Club into the Clubcard framework and allowing Cardholders to communicate with each other via Internet chat rooms provided by the Internet service provider iVillage.co.uk, Tesco allows its Clubcard-members to exchange information on topics like healthy living, diets, fitness, pregnancy and baby, and many more topics, thereby trying to create value particularly to its female members by giving them the chance to build friendships and by promoting a sense of belonging, which has been suggested to be an essential element of successful customer-loyalty-programmes that is difficult to emulate for competitors due to its emotional and intangible nature (Dowling & Uncles , 1997).
53
0811866956938
Technological and analytical prowess Although a growing number of retail organizations have realized the importance of customer information and therefore started to collect large amounts of customer specific data, according to the Accenture Institute for Strategic Change (Harris et al,2001) often less than 5 per cent of this data is ever analyzed. Dunnhumby( marketing data specialists and market research company that s 53% owned by Tesco) makes sure that this does not happen to Tesco, arguing that Every little piece of information helps. Tesco knows exactly how much, where, when and what products Tesco Clubcard-members buy. Armed with this data, Tesco has built a suite of sophisticated customer segmentations according to real purchase behaviour, rather than a version of purchase behaviour based on demographic or socio-economic stereotypes (Pack et al., 1999). This allows Tesco to tailor sophisticated campaigns and to offer Clubcardmembers more of what they value by sending out targeted offers based on what they do and do not buy, their expenditure levels on particular products and parts of the store, their responsiveness to previous promotions, likely competitive threats based on where they live and their loyalty towards Tesco. The range of products in Tesco stores is also tailored using knowledge of how Clubcard-members shop across brands. The mechanics of the reward had been done elsewhere in the world before Tesco but the thing that Tesco sets apart is the depth of its data analysis. The big step forward isnt to launch a card with magnetic stripe on it, it is understanding the value of the information it provides.( Keith Mills , Air Miles Founder, 2003).
Benefit package and not just another marketing gimmick According to Butscher (2001), the most important aspect of any CLP is the benefit package a programme offers to its members, which is one of the main success factors behind the Tesco Clubcard, since Clubcard vouchers can be used for a huge variety of benefits that cover a broad area of interests ,which are likely to appeal to people from all kind of social classes with different interests, and also increase the likelihood of creating aspirational value (how much the Clubcard-member wants the reward, e.g. exotic free travel might be more desirable than in-store shopping discounts) to Clubcard-members (O Malley, 1998). By providing Clubcard-members with the opportunity to accumulate and redeem Clubcard points not only with Tesco but also with its coalition partners (i.e. purchase strategy), Tesco increases the likelihood of creating what has been termed by OBrien and Jones (1998) as cash value
54
0811866956938
(how much the reward represents as a proportion of the actual expenditure) for Clubcardmembers since it provides them with the opportunity to accumulate points more quickly.
The internal customer Tescos loyalty program rollout established loyalty marketing at the heart of the business. The staff at every level from the main board to the frontline staff is made to understand why the scheme is important to the customers and to the businesses future and are made to nurture and encourage it at every opportunity. Tesco staff have been an important ingredient in encouraging customers first to take up, and then to use Clubcard. They are briefed early and thoroughly not just about what will be different for their job , but about what Clubcard does for the business as a whole. If a loyalty scheme is to be integrated with the business, it has to be a part of the working lives of the people who run the business in the stores, too.(Cigliano et al.,2000) During the launch in 1995, Maclaurin criss-crossed the country to make sure that every member of staff knew exactly what was needed, and felt valued and understood. Tesco produced a video presented by Tim Mason encouraging staff to sell the card to shoppers and making sure they knew what the benefits were, what they did was effectively grassroots marketing using Tescos own staff. The key rule of customer loyalty is, Serve your employees first so they, in turn, can serve your customer which is what Tesco is good at. Loyalty programs stand and fall on how they are represented by the employees that personify it.
Professionalism and pragmatism Successful retail loyalty programmes are created by matching good marketing skill and commercial pragmatism with a hard-headed attitude to data.(Gilbert,2003). During initial Clubcard days, Tesco found that the best way to get around the complicated data warehousing was to start small with a Datamart. The designers of datamart took pragmatic decisions on data, time and resources and made compromises. In effect, they decided not to use data to answer every question about every customer , but to answer some of the biggest questions about most customers. They broke down data to test a series of hypothesis. It was data realism , not idealism. Immediate results of data analysis were apparent,
55
0811866956938
Tesco found that in any single store, the top spending 100 customers were as valuable as the bottom 4000. The analysis also established that the stores with the highest Clubcard penetration were least effected by competitor attacks. Tesco started not from what would we like to do but from what can we realistically do, and will make a profit? ( Humpy, 2004). Tesco didnt agonize over information it couldnt extract at first, or hold up the process until it could get information. Instead, it asked questions that it could answer, and found that there were surprisingly many of them. It built on each new discovery. Clubcard wasnt just about passively observing trends, it was a massive laboratory of customer behavior. (Humpy,2004)
4.8. Six Key Factors

Besides other factors, six key success factors that contributed to the success of the loyalty scheme as depicted in the figure below are
Figure 4.11. Successful of Loyalty
Commitment Rewards Key Success Factors Measurements Flexibility Simplicity Differentiation
Adapted from Ahlert et al.,2000, pg 21-23
56

1.
0811866956938
Commitment
Tesco made sure right from inception that there was commitment and involvement of all departments, and Clubcard wasnt left solely to the marketing team. The whole organization was and is involved with the introduction, execution, and on-going refinement of the loyalty program.
2.
Differentiation
Tim Mason defines differentiation as having two aspects: differentiating the company in the customers eyes, and differentiating the customers in the companys eyes. Most loyalty programs try their hardest to differentiate the company in the customers eyes but forget to differentiate the customers in the companys eyes. The Clubcard program works to accomplish both.
3.
Simplicity
The more a program gets cluttered with options and exceptions, the more it loses its appeal.( Hansen et al.,2000) Tesco is a great believer in the divinity of simplicity which is why its loyalty card program is easy-to-understand. As Tim Mason points out Clubcard is to improve our performance at every point of contact with our customers, to make them happier and the company richer .Its no more complicated than that.
4.
Flexibility
Tesco has shown the flexibility to alter, refine, and replace the various parts the loyalty program. As Humpy (2003) puts it, Seldom does any great idea play out forever; it needs to be refreshed.
5.
Measurements
Mainline; dont marginalize your customer data. Dont leave it in the marketing department. Thats like leaving store performance data sitting in the accounting department and not getting it to the operators who can use it. (Humpy et al., 2004). Tesco has turned customer information into on-going measurements to help improve all parts of the business. It hasnt just used it to help develop targeted mailing lists and for promotional matters.
57
0811866956938
Tesco.com When it came to home shopping, Clubcard gave Tesco a huge head start. Its data management skills as a company was way ahead, but more than that, the Clubcard database generated a fantastic list of people to go after , and a sophisticated understanding of those customers. Thus, Tesco could be very specific in terms of targeting. This was a huge built-in advantage when starting up a business in the form of Tesco.com.( Carolyn Bradley, 2001) Tescos plan to target online shoppers via Clubcard , rather than just fishing in the pool of internet users, paid off. The contribution of Clubcard isnt just about finding new users, it also makes it easier for Tesco to keep its online customers. From the earliest days, the home shopping team uses Clubcard data to the full, combines with other data sources, to identify which Tesco stores offer the greatest potential for the service, which stores offer the best potential to expand the service, where the greatest concentration of prospective Tesco.com shoppers could be found, what take-up would be and what sales value could be predicted.. Clubcard provides the means to understand how to target customers and gives the ability to validate what is right. Clubcard has also helped in planning exactly what message needs to be communicated at each stage of the relationship. When launching the internet shopping trial, Tesco was a lot stronger position than rivals it knew the names , addresses and shopping habits of millions of possible customer already. Without Clubcard, the company would have had all the risk and the same unsustainable cost of customer acquisition. Using best practice direct marketing techniques learnt from marketing Clubcard over the years, Tescos dot com marketers have increased their success rates. By analyzing the Clubcard, Tesco can easily identify the types of shopper who have the highest likelihood of actively using the online service, Tesco can easily target outside sources of data and market more effectively to shoppers who are not yet Tesco customers. Also ,by basing the expansion of Tesco.com on its network of stores rather than regional warehouses, Tesco can use Clubcard customer data to prioritize those stores offering the best potential where the greatest concentration of prospective Tesco.com shoppers can be found. Research suggests that customers who engage with a firm through multiple channels exhibit deeper loyalty than single channel customers. Tesco tries to give consistent service whether coming into the store, logging on the Web site, or calling the service center is concerned. It internally coordinates sales and service across multiple channels so customer preferences are accessible no matter how the customer chooses to interact.
58
0811866956938
Convenience of location (New store formats) Convenience of location is a major determinant in the loyalty process, not simply the fact that someone has joined a loyalty scheme.(Berman et al.,2001) By analyzing the penetration of Clubcard membership by postcode, the Clubcard data gives a sharply defined picture, store by store of how far valuable customers are willing to travel to shop. It shows in which neighborhood competition is biting, who is coming back several times a week, and who saves up their shopping for a weekend. All this information helps Tesco to plan the location of its stores. Helped with Clubcard data, Tesco was the first one to start the Metro format, situated in the middle of town because it realized that busy customers didnt want to travel a lot for their grocery shopping. Tescos Metro format makes sure that these customers are not alienated. With multiple ranges and unparalleled spread of formats, as well as the largest online grocery sales in the world, Tesco has profited from the cash-rich time poor phenomenon in Britain.
4.9. Conclusion
We looked at the questionnaire which contains the respondents personal details who visited Tesco. And we also looked at the research limitations that the researcher faces the challenges to gather the information.
At the next chapter we will look at the recommendations and conclusion for Tesco.
59
0811866956938
CHAPTER 5
Conclusion
60
0811866956938
CHAPTER 5
5.1 Introduction
At previous chapter we looked at the questionnaire result which contains the respondents details and limitations of research. At limitations of research we looked at the challenges that researcher faces and other limitations such as time and financial.
In this chapter we will look at the conclusion of this research and then we will look with the other chapter for the recommendation for Tesco.
5.2 Conclusion
After careful examination, evaluation, assessment and analysis of data, its the prerogative of every study to point out how the aims and objectives of the research were met, which is what this chapter aims to do.
By making my findings the base for my research, I came to the conclusion that customer relation management (CRM) can persuade all the people most of the times if customer relation management (CRM) is right and effective, but a big budget doesnt necessarily apply when it comes to manipulating & fooling people. And also we have to admit that advertising is very important to keep customer loyalty otherwise other retail companies can still customer.
Consumer behavior is something that is very difficult to predict because it is influenced by cultural, social, personal & psychological factors. There are moral & religious factor that also influences a consumer behavior. Because of these factors affecting the consumers behavior, what is right advertising for one consumer can simply be a complete opposite for another making it ever difficult for the advertiser to precisely quantify the affects of advertising on consumer behavior.
The key to right customer relation management (CRM) is therefore the consideration of consumer behavior, the power of the brand, the proper use of advertising channel
61
0811866956938
incorporating elements of integrated marketing communications and a clear understanding of the target audience. Advertisers still opt to take a leap of faith by spending millions of pounds on advertising on an assumption that the fish known as consumer will take the bait. The advertisers have realized that that machine gun approach to advertising where every person is hit randomly on hit or miss assumption is not very effective and perhaps a more target based approach is required where right people are targeted with a sniper gun is more effective. Companies can still rely on creative ideas to affect customers buying behavior and fooling all the people all the time with right customer relation management (CRM) & a big budget but its not people they are fooling, perhaps they are fooling themselves sometimes. Finally, customer relation management (CRM) can offer many benefits in terms of increased sales and incremental profit for a company in the long run. For this to happen though, the message has to be relevant and channelled through the appropriate media, especially in todays competitive media landscape.
It points out how the respective objectives were realized and tries to give an answer to the research question. The chapter also encapsulates Clubcard specific recommendations and discusses the limitations of the study and areas where further research may be carried out. Research Aim and objectives Objective 1
Analyze and define the concept of loyalty and identify the relationship between customer satisfaction and customer loyalty.
Loyalty is an emotional response based on empathy, not a logical response based on bribery which seems to strengthen Olivers (1999) views discussed in Chapter 2. Loyalty does not imply low price sensitivity (Some customers are price sensitive; all customers are value sensitive).
62
0811866956938
As pointed out by Oliver (1999) in Chapter 2, the loyalty, satisfaction relationship is asymmetric, customer satisfaction does not necessarily imply customer loyalty (customer satisfaction is at an all time high; customer loyalty is probably at an all time low). Loyalty programs do not necessarily make customers loyal. Loyal customers do not necessarily increase company profitability. Customer data from loyalty programs are often more valuable than the loyalty programs themselves. Win the hearts and the heads will follow.
Objective 2 Examine the conditions under which customer loyalty enhances profitability
As pointed out by Morgan and Hunt(1994) and Dowling (2002) in literature review ; for loyalty programmes to be successful and enhance profitability companies should:1) Have a good base product that performs well in the market and is in some way differentiated. 2) Focus on intrinsic rather than extrinsic awards 3) The reward should be genuinely valued and perceived as taking some effort on part of the company to deliver. Those that will ultimately be successful are those that add value to the core experience the consumer is buying . 4) Offer a strong personalization factor, superior loyalty schemes offer the consumer considerable choices in respect of how their reward may be redeemed. For example, literally every version of the Clubcard magazine is personalized .
5) Distance itself from price discounts, all too many loyalty programmes are little more than discount schemes designed on the principle of the more you buy the more you get. In that case, it is not brand loyalty that is being built up, but transactional loyalty. The danger with this approach is that whenever the competition comes up with a better scheme, consumers will defect in their thousands. An effective loyalty program should have the opposite effect and actually decrease consumer sensitivity to price as a genuine affinity with the brand is engendered. Clubcard has helped Tescos business grow based on strength of a listening relationship. Leahys insistence that successful retailing is the result of listening to what customers tell 63
0811866956938
you they want is real in the Clubcard programme. Its core purpose and value To create value for customers to earn their lifetime loyalty and no one tries harder, and treat people how they like to be treated are made real in Clubcard. We have values in this business. A good company is run on principles and values; it is not run on last weeks results. Over the long term, what matters in building a business is how the company conducts itself, not just what it does. It is how it does that counts. Clubcard is entirely consistent with that (Leahy, 2002). Just introducing a points program in the hope of profitably increasing sales and not using the customer data is like a dairy farmer, who after separating the cream from his milk, pours the cream down the drain. The richest part of the program is being wasted (Cuthbertson et al., 2001 cited in Web 10).
Value is Co created by producer and consumer Crawford Davidson, director of Clubcard uses the analogy of a cappuccino, My role as Clubcard director is sprinkling the chocolate on top of the cappuccino. Marketing provides the froth to the milk. But both have to be based on the good, fresh, hot coffee. Its Tescos ability to cut through the jargon and focus sharply on what really drives their customer behaviour that makes it different. Its the great amount of conviction that underpins the programme, which is responsible for the greater payback. Tesco views its loyalty scheme as an integral part of its business where the customer is all-important; where doing everything possible to please them is paramount; where keeping in close contact with them is vital. It acts as a vehicle for Tesco to add value to customers in the form of services, product range, and prices as well as enabling the company to say thank you to its customers. In essence, its Clubcard is: A tool to understand the customer A way to communicate value A symbol of commitment
Objective 3 Recognize first, reward later. Serve first, Sell second. Assess the role of loyalty programs in promoting loyalty and building favourable customer relationships.
64
0811866956938
A card-based loyalty scheme is not a credible alternative to being the right price, offering excellent service, innovative products and customer care, because any business that neglects factors like these is extremely unlikely to have long-term success in achieving customer loyalty. Loyalty schemes supplement service and its important to understand that these initiatives and a card-based loyalty scheme are not mutually exclusive. Loyalty programs create relevance for the customer which may create an emotional bond. They are starting point for deepening the customer relationship, which flourishes in many ways .Customer loyalty is not a game; rather it is the result of a game.(Woolf, 2001)
Loyalty cannot be earned with a programme, but information can be bought with a loyalty programme, and that information will highlight the strengths and weaknesses of the business which can be used to improve the core offering of the business, and the improved core offering can bring loyalty. Loyalty comes from a firms core offering and their products and the way it satisfies its customers. In order to feel loyal to an organization, a customer must feel that all his need and desires are not only satisfied, but intelligently predicted and understood. Tescos loyalty programme is designed to appeal to customers heart as well as heads. Positive shift in shopping behavior and emotional commitment is the goal for Clubcard. It is about behavioral and attitudinal change and combined together these two things add up to genuine customer commitment. It caters to both emotional and rational aspects of behavior. Tesco is very good at doing what it does. It uses its knowledge of its customers to improve its service and products but it doesn't rely on the Clubcard to keep its customers loyal. A loyalty card is not a replacement for any of the basic loyalty drivers but is a supplement to them. Just as a hammer doesnt build a house, a loyalty card doesnt build customer loyalty. Both the hammer and the card are tools that, when properly and appropriately used, help bring the architects blueprint to life. (Egan et al., 1999, cited in Web 13)
Objective 4 Evaluate the extent to which loyalty marketing makes its contribution to TESCOs success and identify key areas where TESCO outwits its competitors 65
0811866956938
Clubcard has transformed customer behavior and attitudes. It has provided unprecedented levels of hard information to Tesco that no other source could provide.
Tell me what you eat and I will tell you what you are The information Clubcard provides has been one of the special gold-tipped arrows in Tescos quiver for building its highly successful business. (Mayne, 2003). Clubcard has helped Tesco increase the value of customer experience as the needs of the customer are satisfied, it has customized the customer experience for its customers, and made customers less likely to defect to a competitor. It has helped Tesco develop an emotional connection with a customer which has made the customer less susceptible to competitor attack. As Jack Welch puts it: "We have only two sources of competitive advantage: The ability to learn more about our customers than our competition, and the ability to turn that learning into action faster than the competition." According to Sir Terry Leahy What creates loyalty is how much we understand your life and what we do about it helps your life. Our competitors had all the details of what their customers bought too, but if you dont have the vision as a retailer that you are doing this is to understand customers better, and deepen that relationship, youre always going to wonder why you are making the effort. Tescos spin on loyalty is different Factors that differentiate Tesco from its competitors are Marketing savvy , its analytical ability, its technical superiority, its simplicity and consistency, its audaciousness, its committed, focused and incredibly ambitious leadership , depth of customer knowledge, a focus on retention, profitability and segmentation and the organization-wide dispersal of customer information.
Objective 5 Assess whether loyalty marketing should form a part of a retail firms overall business strategy.
As pointed out in Chapter 2, if loyalty is to be a long term success it has to be regarded as a strategic tool of the business, reflecting the brands core strengths . Each loyalty programme 66
0811866956938
has to be tailored to the brand, and the nature of the relationship that the brand has with the customers .Since, a brand is a collection of defined perceptions in the mind of the consumer, so the loyalty programme has to reinforce and live up to these perceptions. Most importantly , a program has to be loved by the business. Just as marketers and managers have to love the brand, they have to equally commit to the loyalty programme that represents its brands to its members. The design of a loyalty program must take into account the nature of the business, its market position and strategic goals, and the competitive landscape. Program design requires consideration of four key variables, reaping the benefits requires a high level of analysis, a clear strategy and the ability to adjust to changing circumstances. Majority of loyalty schemes are sales promotion programmes in disguise and sales promotion has always been tactical, smoothing out spikes and troughs, never strategic. To tackle this uncertainty, retailers must align any scheme with their strategic objectives and should have in place a durable analytical framework to develop a scheme, which is right for them, or consider rejecting the concept altogether. Loyalty marketing should be a strategy, not a tactic and this strategy should be driven by knowledge which comes from data which should be good quality customer data, rich, relevant and recent. Tesco is recognized as the epitome of best practice loyalty, having put Clubcard at the heart of its corporate strategy.(Palmer et al, 1999 cited in Web 14). David Reid, Tescos deputy chairman, acknowledges the strategic importance of the loyalty cards, stating that without them it would be like flying blind. Tescos loyalty marketing project has become a pillar of its business strategy and has helped Tesco evolve in its strategic thinking and direction from being an outstanding food retailer to being an information-driven business, constantly searching for ways to act as the value-adding agent for its customers. Tescos customer information assets uses to allow it to take a strategic approach to customer management. The data and analysis drive organization-wide customer decision-making to direct promotions, category management, local store ranging and even store location. True value of a customercentric business is found in its customer knowledge. The data, information and the subsequent knowledge generated has become a part of the companys culture. It solves real problems and is not just associated with marketing strategy. Tesco builds an image of a customer built from seven pieces,: life-stage, shopping habits (frequency etc.), basket topology (what they buy), promotional promiscuity, primary channel (how they like to buy), brand advocacy and profitability, including the element of cost to serve and then they follow a plan act measure approach. Customer insights define corporate strategies and are 67
0811866956938
acted upon by implementing customer-focused plans, and then measured. It is an approach that enables Tesco to evaluate its success, and to test, reapply and learn as it goes. Incorporating Clubcard data as its core business strategy allows Tesco to change business practices to respond to the individual customer and therefore, to practice true CRM.. Tescos loyalty scheme strengthens the view put forward by Morgan et al. (2000) in chapter 2, that a loyalty scheme can only have a sustained impact on the bottom line when, from its inception, it changes the dynamic, the whole culture of the organization. Tesco board recognizes that loyalty scheme data is the bedrock of their business. Its the fundamentals of the Clubcard programme that have formed such a firm foundation for enduring success, its the insights that preserved customer interest and have driven results for the business, the marketing power of statement mailing, the development of better targeting, richness of data that help to run Tesco on a daily basis and the opportunities that have given Tesco to think creatively about its customers. Ten years after its launch , the secret marketing project from the bunker has become a pillar of Tescos business strategy.
A stand-alone loyalty scheme is vanity, loyalty as brand enhancing strategy is sanity Although Clubcard forms a part of Tescos success , it cannot be claimed that Clubcard was the exclusive reason for Tescos success. Almost simultaneously with the introduction of Clubcard, Tesco beat competition from other supermarket chains notably a strong bid from Sainsburys, to purchase Scottish supermarket chain William Low, transforming Tesco into a truly national retailer. Its Tescos philosophy of Circle the Customer which is doing wonders for it. Nonetheless Clubcard is fundamental to Tescos accelerating business success , its may not encourage the required amount of loyalty which Tesco wants but gives Tesco enough information which after properly handling and analyzing helps to change customer behavior. Figure 2.1.2 encapsulates Tescos success factors.
68
0811866956938
Figure 5.1. COFP(Customer, Operations, Finance, Operations) diagram
We try to right firs get it t time
I Wh can at get Iw an t
T he p are rices goo d
W co e de n ev stanliver ery t da ly y
n An i b job
e ime i t lifet rn l a y Ear oyalty l l
s es i l r isl ar e e a le T r c Th re c a
r ou e r ak ie m eas e W bs do jo to
I dont queue
Every little helps Every little helps
w kno We tal our vi how bs are jo
The staff are great

sa s le
Max im prof ise it
We always save time and money Th ope e way and rate i we res s sa pon fe sib To b le e tr eate with resp d ect
r r e ge me m na an p lps m m he he A A ng ho ho stin res W W n nte
(Adapted From Financial Times 03/06/2005)
Manage ou r investmen t
w ro G
69
ty u i uni ort p o t n opp t on g A An to ge t
0811866956938
CHAPTER 6
RECOMMADATION
70
0811866956938
6.1. Introduction
We looked at the importance of customer service in previous chapters and we investigated that customer relationship in Tesco is quite successful. Besides Tesco has good strategy to approach customers and try to make them loyal. But recently having a good customer service is not enough because the customers needs and expectations are increasing day to day. Thus Tesco has to make sure that providing excellent customer service to attract its product and keep the existing customers plus try to introduce the company to new consumers. Hence some of the errors on service in the shop needs to be corrected. During the research we find out some important tips that Tesco can be aware of them to have better service. The aim of recommendations to point out the errors or missing on service.
6.2. Concerning the Increase of the Quality on Customer Service

As we mentioned and investigated that Tesco provides good customer service to its customers. However, customers expectations are increasing day to day hence it is vital to provide excellent service. Thus some requirements need to be applied on customer service through customers advices or experts tips on customer service. The aim of recommendations is as some customers may advice to have Tesco clubcard and could explain to them how it is profitable for them to use this clubcard when you buy something in Tesco.
6.3. Concerning the Customers Satisfaction and Loyalty

Questionnaire results showed that customer service at Tesco was quite successful and majority of customers rated as the service they had good or satisfactory. But at it was mentioned in literature of review that satisfied customers doesnt mean that they will come to the shop and purchase. Hence customers loyalty should be build. The aim of recommendations is that Tesco can more advertise Tesco Clabcard and in a certain amount of shopping some discounts or some promotions can be given to consumers who have Tesco clubcard. Having Tesco clubcard will give an opportunity to a consumer to have discount and save money, on the other hand company will get profit to keep its customers.
71
0811866956938
6.4. Concerning the Customers and Staff Satisfaction

We mentioned about the importance of reward strategy to make the staff and customers happy. Happy staff makes customers happy and happy customers are willing to purchase at the shop. Hence Tesco can apply reward strategy on customer advisors. As we think that all the staff have the same effort to help the consumers hence manager can observe the staff and staffs behaviour and gives reward to that person. This reward can help the staff to make more effort to be helpful or smile through to make consumers happy.
Not only applying the reward strategy on staff is enough, but also do have reward strategy on consumers is really important.
6.5. Concerning the Queue

Most of the complaints were about waiting on the queue long time which may cause losing customers. Especially during Christmas, bank holidays and Easter holiday people are visiting the shops most. But length of queue may change their idea to even looking at the items hence Tesco can provide temporary tills for its consumers to avoid queuing. It will be also prevented to losing consumers.
6.6. Concerning the Comment Box

The most important thing to improve customer service is finding out the consumers opinion about service. To obtain the ideas can be possible with a comment box that consumers can write their opinion freely and if they request to be feedback they can inform the management. According to comments manager can inform the customer advisors and come up with idea to correct the errors on service.
6.7. Challenges for Tesco

Clubcard as a Global scheme With Tesco going global at a rapid pace (almost half of Tescos retail floor space is now cited overseas), the emerging question is , will Clubcard work as effectively in the companys new markets? Past researches have shown that loyalty programs travel poorly. Superficially, there are common shopping traits around developed world but consumer attitudes and habits in other markets often differ in subtle but important ways. Shoppers in some countries are moved by immediate discounts and have no patience with accumulating rewards, even if the 72
0811866956938
ultimate deal is better. Other regions have under-develop retails brands and more fragmented markets, so customers are far more likely to graze for bargains across a number of shops in their area. Even, the legal environments may be significantly different. For example, Germany has a number of uniquely restrictive laws such as Free Gift Ordinance and Discount Act, which make loyalty marketing more difficult. With having done the hard bit with hosting the worlds most sophisticated loyalty program, the challenge for Tesco is to take the loyalty program into its overseas market to give itself a competitive edge.
Issuing Rewards One of the hidden strengths of Tesco Clubcard has been the way that customers accumulate their rewards rather than redeem them on an ad hoc basis. Though, the quarterly mailing program works well for Tesco, but customer research suggests that customers value some acknowledgment for their loyal custom in the store. They also like the freedom to claim membership benefits as and when they choose. So, Tesco may be better off designing some on-the-spot discounts and promotions and catching the customer in the shop to reinforce Clubcard when they are thinking about their shopping. Perhaps, personal media like SMS text messaging to the customers mobile phone could be an option in the future. Loyalty or lock in Supermarkets and discounting have always gone hand in hand. Eye catching promotions on specific products have been the trusted weapon in the retail armoury. In todays world , its all the more difficult to make the customers move away from the mindset of discounts. Customers are losing interest in loyalty schemes and its very difficult to get them involved. A perception against the concept of loyalty schemes is slowly developing with proliferation of loyalty schemes. Real loyalty is elusive as customers have become more fickle than before. In such a scenario, Tesco should constantly work to keep refreshing the Clubcard and add value to it , perhaps by the addition of more brand assortments in store or adding more associate partners to its Clubcard scheme. Since the days of true loyalty may be over, Tesco should perhaps concentrate more on locking-in the customer with its Clubcard than trying to develop true loyalty.
73
0811866956938
6.8. Conclusion Typical benefits of having loyal customers include the following: higher probability of crossand up-selling, lower costs to manage, and a better potential referral flow given a more reference able and satisfied customer base. Of course, customer loyalty is not a panacea or silver bullet; companies need to carefully separatevia such elements as profitability, potential opportunity, and strategic value whom they want as loyal customers and whom they do not want. Once a company understands which customers it wants to keep loyal, marketing should play a critical role in analyzing and reporting on value-delivery perceptions, win/loss drivers, and value-migration velocity and direction. Marketing professionals should be an integral part of fine-tuning the growth (sales) engine of their company and helping to align all internal stakeholders on creating and delivering greater levels of value over time.
Before embarking on a loyalty program, following questions need to be clearly answered What demand-side goals are there for the loyalty program maintaining customer loyalty or enhancing it? How will these goals be set and assessed? In general, will the program focus on the most profitable customers? What time frame is to be used to assess the program profitability? What is the appeal of the program for these customers? How will the program be used in combination with other marketing activities? Will these initiatives grow share and sales revenues? Can the customer data be analyzed in useful ways? Are the sales and cost data reliable? Is the evidence contradictory? What benchmarks have been chosen to assess the loyalty program and are these appropriate? How will the overall profitability of the program be calculated? and the following questions need to be looked at to avoid major traps
74
0811866956938
Are there too few customers who will actually be interested in loyalty programs? Does the scheme have little appeal for customers? Or, has the scheme been too indiscriminant perhaps all three types of customers have joined because they see it as a (relatively) free option and/or a reward for their current purchase behavior? Are customers more loyal to the scheme than the brand? What are the chances of a competitor retaliating to nullify the impact of the program? Have competitors already launched a counter-initiative Is the need to service large numbers of members driving up running costs?
75

Chapters

Enviado por

Dados do documento

Descrição original:

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

Chapters

Enviado por

Direitos autorais:

Formatos disponíveis

Customer Relationship Management in Tesco

Customer Relationship Management in Tesco

1.2. Company Overview

Competed only on price and had mediocre quality products. 2

Customer Relationship Management in Tesco

wider product portfolio.

(Source: Annual Review and Conclusion Financial Statement 2009 )

1.3. Research Aim and Objectives

Customer Relationship Management in Tesco

Customer Relationship Management in Tesco

1.4. The Importance of Customer Relationship Management

Customer Relationship Management in Tesco

1.5. Retail Industry

1.6. Customers Buying Behaviour

Customer Relationship Management in Tesco

1.7. Structure of Research

Customer Relationship Management in Tesco

Customer Relationship Management in Tesco

Customer Relationship Management in Tesco

Customer Relationship Management in Tesco

Customer Relationship Management in Tesco

2.2.1. Conceptualizations Of Loyalty

Figure 2.1. Conceptualizations Of Loyalty

[Source: Adapted from Uncles et al., 2002]

Customer Relationship Management in Tesco

2.2.2. Loyalty Frameworks

Customer Relationship Management in Tesco

Figure 2.2. Categories Of Loyalty

Low Latent Loyalty

Reasons for the rapid increase in popularity of customer loyalty

Customer Relationship Management in Tesco

Customer Relationship Management in Tesco

Customer Relationship Management in Tesco

2.7. The 5 P Loyalty Strategy

Customer Relationship Management in Tesco

Figure 2.3. The 5 P Loyalty Strategy

Adapted from Butsher,2001, pg 123-131 18

Customer Relationship Management in Tesco

structure makes communication more effective Membership prerequisite keeps

Customer Relationship Management in Tesco

In business-to-business markets In markets with homogeneous

In business-to-consumer markets With commodity products

Adapted from: Butscher, 2001, p 51

Customer Relationship Management in Tesco

Customer Relationship Management in Tesco

Figure 2.5. Behaviour-Based CLP

Habitual buying Price advantage Persuasive communication

Switching costs Repeat patronage

Adapted from: Morgan et al., 2000, p 73

Customer Relationship Management in Tesco

Customer Relationship Management in Tesco

Figure 2.6. Relationship-based CLP

Product development expenses

Adapted from: Morgan et al., 2000, p 79

2.8.1. Tescos CLP-Mix

Customer Relationship Management in Tesco

Customer Relationship Management in Tesco

Figure 2.7. The Ideal Customer Experience

Adapted from Fournier et al, ,2003 pg 133-151

2.10. Customer Loyalty Measures

Customer Relationship Management in Tesco

2.11. Rank the Customer Base by Value

2.12. Customer Strategy Measures